There is at present no tax on withdrawal from employee provident funds and other superannuation funds. In the recent budget, the government has proposed that withdrawal in excess of 40% of the accumulated corpus will be taxed.
"In view of the representation received, the government would like to do a comprehensive review of this proposal and therefore I withdraw this proposal," finance minister Mr. Arun Jaitley said in a statement in the Lok Sabha.
The prime minister Mr. Narendra Modi's office had also been in favour of the withdrawal that had dominated the post budget debate.
The government has also withdrawn the proposal to limit tax-free contribution by the employer to the provident fund of an employee to Rs 1.5 lakh per annum.
The 40% rebate proposed for the National Pesnsion System (NPS) will however continue. NPS is at present fully taxed on withdrawal. This is a relief for NPS subscribers.
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